India’s economy relies heavily on Micro, Small, and Medium Enterprises (MSMEs). They drive industrial production, create employment, and contribute significantly to exports. However, many MSMEs struggle to secure funds from formal financial channels due to the lack of collateral. This is where the CGTMSE scheme steps in to support small businesses with collateral-free loans and make finance more accessible.
In this guide, we will explain how the CGTMSE scheme works, its features, benefits, and eligibility criteria for Indian businesses looking to grow.
What is CGTMSE?
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a financial scheme designed to empower micro and small businesses. Launched in 2000 as a Government of India initiative in partnership with the Small Industries Development Bank of India (SIDBI), it provides guarantees to lenders for loans given to eligible MSMEs without requiring collateral or third-party guarantees.
This government scheme enables small enterprises to access higher loan amounts, meet working capital requirements, invest in infrastructure, and pursue long-term growth plans.
Why CGTMSE Matters For MSMEs
Out of 6.3 crore MSMEs in India, only around 2.5 crore borrow from formal sources. Many small businesses turn to informal lenders, which leads to high interest costs and restrictive terms.
The CGTMSE scheme bridges this gap by offering collateral-free finance. It allows micro and small businesses to meet their short-term and long-term financial needs while ensuring they are not held back by the lack of assets or guarantees.
This initiative is especially important because small businesses make up 96% of India’s industrial units and contribute nearly 40% to industrial production.
Key Features of CGTMSE
The scheme comes with a range of features designed to empower MSMEs:
- Collateral-Free Loans
Businesses no longer need to provide physical assets as security for loans, which is a major challenge for most small enterprises.
- Guarantee Coverage Up to ₹5 Crore
This government scheme provides credit guarantees for loans up to ₹5 crore, enabling businesses to fund expansion plans, technology upgrades, and operational needs.
- Support For Multiple Loan Types
It covers working capital loans, term loans, and composite credit facilities.
- Nominal Annual Guarantee Fee (AGF)
For loans up to ₹10 lakh, the AGF is kept low to make borrowing affordable. For loans between ₹2 crore and ₹5 crore, the maximum fee charged is 1.35% of the loan amount.
Benefits of the CGTMSE Scheme
Here are some key benefits for small businesses availing loans under this government scheme:
- No Collateral Requirement
MSMEs can access loans without pledging property, machinery, or other assets.
- Better Access to Finance
Businesses struggling to get funds from formal institutions can now secure loans with ease.
- Support for Growth And Expansion
The scheme allows MSMEs to invest in infrastructure, equipment, and working capital, supporting long-term business growth.
- Simplified Loan Process
The scheme’s guidelines make it easier for lenders to process loans quickly, reducing delays for applicants.
Eligibility Criteria for CGTMSE
To qualify for loans under the CGTMSE scheme, businesses must meet certain criteria:
- The applicant should be an existing or new MSME engaged in manufacturing, trading, or services (excluding agriculture and self-help groups).
- The lender must consider the business viable and profitable.
- The borrower must not have defaulted on loans with any bank or financial institution.
- The enterprise must meet the micro and small enterprise classification under the MSMED Act, 2006, based on investment and turnover thresholds.
Application Process for CGTMSE
Applicants must submit these documents to avail of a loan under the CGTMSE scheme:
- CGTMSE loan application form
- Proof of business incorporation or registration certificate
- Passport-sized photograph of the applicant
- KYC documents of the borrower
- Udyam Registration Certificate
Lenders will evaluate the application to determine the viability of the business before extending the loan.
What is not Covered Under CGTMSE?
Some credit facilities are excluded from the scheme, such as:
- Loans covered by the Deposit Insurance and Credit Guarantee Corporation or the RBI are guarantees.
- Credit covered under any other government insurance or indemnity schemes.
- Loans disbursed against collateral or third-party guarantees.
It is important for borrowers to confirm that their credit requirement fits within the scope of the scheme.
Hybrid Security Model Under CGTMSE
In some cases, lenders may approve a portion of the loan against collateral or a third-party guarantee provided by the borrower. This secured part reduces the lender’s risk. However, the remaining unsecured portion of the loan can still be covered under the CGTMSE scheme.
This arrangement allows businesses to access higher loan amounts while only pledging partial security. The unsecured part of the credit facility is eligible for coverage under the scheme, up to the maximum guarantee limit of ₹5 crore. This model provides flexibility for both lenders and borrowers, making it easier for micro and small enterprises to meet their financial needs without providing full collateral.
Enabling MSME Growth With Confidence
The CGTMSE scheme has become a vital support system for small businesses in India. By offering collateral-free loans and flexible credit options, it removes barriers to finance and allows enterprises to grow and scale confidently.
For MSMEs aiming to secure funding without the hurdles of pledging assets, working with financial institutions like HDFC Bank can provide access to competitive rates, expert guidance, and simplified processes tailored for small business needs.